Cash gifts can be made by check or charged to a credit card. Charitable gifts of cash are deductible up to 50% of the donor’s adjusted gross income in the year of the gift with any balance carried forward up to five more years. In valuing any charitable gift for tax purposes, the donor must reduce the gift amount by the fair market value of any goods or services received from the charity.
If you come to the end of a calendar year and determine that you will have a greater income that year than expected, a charitable gift made by credit card is one way to accelerate a deduction into one calendar year and actually pay for the gift in the following year.
For a gift of appreciated securities, a donor is entitled to an income tax deduction for the full fair market value of the securities up to 30% of adjusted gross income, with any balance carried forward up to an additional five years. In order for the gift to be fully deductible, the donor must have held the asset for more than one year. The value of the gift is the average of the high and low market prices on the date the securities are transferred to Penn.
The transfer of stock from a donor to Penn is a fairly simple transaction. Morgan Stanley serves as the University's main brokerage firm. The donor will need to work directly with his or her broker to initiate a transfer of stock to the University of Pennsylvania [transfer form]. If the donor holds certificates, it is best if those certificates remain unendorsed and the donor completes a separate stock power form authorizing transfer of ownership from the donor to Penn. Remember to notify the Office of Gift Planning at 215.898.6171 and the University’s Treasurer’s Office at 215.898.7254 when transferring securities.
If a donor wishes to maintain stock holdings in a specific company, it may make sense to give appreciated shares to Penn and then buy an equivalent number of shares with cash, thus establishing a new, higher cost basis.
Designating Penn as the beneficiary of retirement assets is one of the smartest ways for donors to make a gift to Penn and bypass multiple levels of taxation. First, qualified retirement savings are generally subject to federal income tax as they are withdrawn from the plan. Second, failure to take the required minimum distribution after age 70 1/2 results in a 50% tax on the undistributed amount. Third, at death, any remaining account balance is included in the calculation of the gross estate and may be subject to both income and estate taxes. Fourth, a generation-skipping tax may apply to substantial account balances that pass to grandchildren or to other remote generations. These taxes can consume up to 75% of the retirement assets.
However, careful planning for the disposition of retirement plan assets can help to avoid undesirable tax costs. Naming Penn as the beneficiary of a retirement plan will reduce the size of a taxable estate and avoid income taxation on those funds. In certain situations, a charitable gift of a retirement account can improve the donor’s overall tax consequences, increase the amounts passing to heirs, and escape income and estate taxes.
A simple form from the manager of the retirement fund is all that is required to name the University as a beneficiary.
There are a number of ways to structure a gift of real estate, each with its own advantages. For example, some gifts may be set up to provide an income stream. Real estate gifts can be made in the form of undeveloped property, a personal residence or farm, rental property, or commercial property. The owner of the property may be entitled to an income tax deduction based on the appraised value of the property.
The donor must submit a copy of a qualified appraisal with his/her income tax return for the year of the gift. Also, IRS Form 8283 must be submitted and signed by Penn acknowledging receipt of the gift. Penn carefully examines each piece of real estate prior to its acceptance as a gift in order to ensure its usefulness to the University.
Real estate gifts take a number of steps to complete. Contact the University early in your planning to facilitate the efficient gathering of information.
Life insurance can provide a great giving opportunity in at least two simple ways:
Donating a fully paid-up life insurance policy naming the University as irrevocable owner and beneficiary entitles the donor to a charitable income tax deduction for the cash surrender value of the policy. Naming Penn as beneficiary, without changing ownership of the policy, does not generate an income tax deduction, but it is eligible for the estate tax charitable deduction.
Artworks and other personal property may be given for the unrestricted use of the University. These items are reviewed for acceptance by the Curator or other appropriate Penn representative. The donor may be able to deduct the fair market value of the item at the time of the donation, as established by the donor’s independent appraisal. In order to deduct the property’s full fair market value, it must be for a use related to the educational mission of Penn and have been held by the donor for more than one year.
If the property is valued at more than $5,000, the donor must obtain a qualified appraisal and file IRS Form 8283 with his/her income tax return. Penn must also sign Form 8283 indicating receipt of the gift. If the property is valued at more than $500 but less than $5,000, an appraisal is not required but Form 8283 must still be completed and submitted with the donor’s income tax return.
The cost of obtaining a qualified appraisal for a gift of personal property may be a deductible miscellaneous expense for income tax purposes, subject to IRS limitations.
Many donors own businesses or have substantial interests in privately held stock (C- and S- corp), Limited Liability Company and limited partnership interests which may be considered as a gift to Penn.
The company stock or interest is donated to Penn and you obtain a qualified appraisal that substantiates its value. You may take an income tax charitable deduction for the appraised value of the stock; no capital gain tax is due on any appreciation.
Penn may sell the stock back to the company within a reasonable time frame, which funds the gift; or, in the case of an impending business sale, Penn may hold the stock until the company is purchased, funding the gift.
This is a brief explanation of the general steps for donating closely-held stock and other complex assets. Contact the Office of Gift Planning for further information on gifting closely- held business interests and as well as complex assets such as private equity and restricted stock. There are additional details, steps, and conditions depending on the asset. These gifts generally require advice and guidance from your financial and legal advisers.